THE FRIENDLY GUIDE TO. Junior ISAs.

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1 THE FRIENDLY GUIDE TO Junior ISAs

2 Introduction 2 Our Friendly Guides are here to help you get the most from your money. We know the world of finance can sometimes be a little confusing. So each Friendly Guide is designed with the aim of making money matters easier to understand - and help to make you a bit of an expert. As one of the largest mutual societies in the UK - and one that s been around for over 150 years - we have a wealth of experience and expertise at our fingertips. Although past performance is not a guide to future performance. That s why we re here to help you navigate the monetary maze and understand the many options that are available in today s financial marketplace. This Friendly Guide to Junior ISAs explains exactly what Junior ISAs are. It will also explain the ways they can help you put money aside for your children s future. We hope you find it useful. Scottish Friendly 2013

3 Useful things to know 3 What is a Junior ISA? ISA stands for Individual Savings Account and is a tax-free way to put money aside for the future. A Junior ISA (JISA) is a special version for children. By using it to save or invest, you can provide a lump sum for your child when they reach 18. How do I know if my child is eligible? Your child is eligible for a Junior ISA if: They are a UK resident They are under 18 They weren t eligible for a Child Trust Fund (ie they were born before September 2002 or on or after January 3rd 2011) What kinds of Junior ISA are there? There are two different types: Cash Junior ISA Stocks & Shares Junior ISA Scottish Friendly 2013

4 Useful things to know 4 So what s a Cash Junior ISA? A Cash Junior ISA is similar to a Junior Savings Account, but with one major difference - it allows you to save money for your child tax-free. That means any interest gained on the savings can t be touched by the taxman. Tax treatment depends on individual circumstances and tax law may change in the future. How much will my child s savings earn? Cash Junior ISAs often offer a higher rate of interest than normal savings accounts. There are a range of Cash Junior ISAs, each with different interest rates and saving options. It s worth taking the time to choose the one that best suits you and your child. Bear in mind that current low rates of interest could mean that the return your child receives on your savings could struggle to outpace inflation. What makes a Stocks & Shares Junior ISA different? Instead of putting money into a savings account, you re putting it to work in the stock market - in funds, bonds or individual shares. However as with all investments, the value of your investments can fall as well as rise and you could get back less than you have paid in. Do I pay tax on my child s Stocks & Shares Junior ISA? The taxman can t touch any money earned from what you put away other than tax on dividends from UK shares. Please remember tax treatment depends on individual circumstances and tax law may change in the future. Scottish Friendly 2013

5 Useful things to know 5 Can my child have both kinds of Junior ISA? Yes, your child can have one Cash Junior ISA and one Stocks & Shares Junior ISA, as long as you keep within the annual savings & investments limit. What are these limits? You can invest a total of 3,720 in Junior ISAs in the current tax year (2013/14). My child s grandad would like to pay money in. Is that possible? Yes. Junior ISAs must be set up by the parent or legal guardian, but once that s done, anyone can contribute. That includes grandparents, aunts, uncles and family friends, as long as the JISA remains within the annual limit. Which type of Junior ISA is best for my child? It depends whether you want to save or invest for your child. Remember, Cash Junior ISAs are essentially bank accounts where the interest is added tax-free, so the overall amount can only ever go up. Stocks & Shares Junior ISAs are linked to the stock market, meaning that the money in the account could have a greater potential than cash to increase over the long term but it can also fall and your original investment is not guaranteed. Scottish Friendly 2013

6 Useful things to know 6 Will my child be able to take money out of the account? Not until they reach 18. Once your child turns 16, they can manage their account, but they won t be able to withdraw money from it until their 18th birthday. For this reason, Junior ISAs should be considered a long-term investment. Can I take money out? No. Only your child can withdraw funds from a Junior ISA - and only when they reach 18. All payments made into it are considered a gift to the child and cannot be returned. Can I move money between Junior ISAs? You can transfer a Cash Junior ISA into another Cash Junior ISA or Stocks & Shares Junior ISA, but Stocks & Shares Junior ISAs can only be switched to another Stocks & Shares Junior ISA. Scottish Friendly 2013

7 Useful things to know 7 Can I take out a Junior ISA for my child if they already have a Child Trust Fund? No. Only children who were not entitled to a Child Trust Fund can have a Junior ISA (i.e. children born before September 2002 or on or after January 3rd 2011). Can I transfer a Child Trust Fund into a Junior ISA? At this moment, it is not possible to transfer a Child Trust Fund (CTF) to a Junior ISA (JISA). However, the government are currently consulting on permitting such transfers with a decision yet to be made. Scottish Friendly 2013

8 A brief summary 8 Cash Junior ISA Stocks & Shares Junior ISA How much can I save or invest each year? 3,720 in tax year 2013/14 less any amounts subscribed to an Investment Junior ISA. 3,720 in tax year 2013/14 less any amounts subscribed to a Cash Junior ISA. Who can get one? UK residents under 18 who weren t entitled to a Child Trust Fund account. UK residents under 18 who weren t entitled to a Child Trust Fund account. Who can contribute? Anyone, though the Cash Junior ISA must be set up by a parent or legal guardian. Anyone, though the Investment Junior ISA must be set up by a parent or legal guardian. Short or longterm investment? Long-term - locked away until the child turns 18 Long-term - locked away until the child turns 18 Is there risk involved? Amount steadily acquires interest until child reaches 18. Bear in mind that current low rates of interest could mean that the return your child receives on your savings could struggle to outpace inflation. Yes. Linked to stock market performance, so the value of your investments can rise and fall and the child could get back less than you have paid in. Can I switch between accounts? Yes, you can switch to another Cash ISA or Stocks & Shares ISA but you can only have one Cash Junior ISA per child. Yes, you can switch to another Stocks & Shares ISA but you can only have one Stocks & Shares Junior ISA per child. Scottish Friendly 2013

9 Features of Junior ISAs 9 No tax to pay Unlike a bank account or building society, the return your child earns on both Cash Junior ISAs and Investment Junior ISAs are tax-free. For a Stocks & Shares Junior ISA, tax-free means the fund your plan invests in grows free of income and capital gains tax (other than tax on dividends from UK shares). For a Cash ISA, tax-free means you don t pay tax on any interest earned on your savings. Tax treatment depends on individual circumstances and tax law may change in the future. Built-in flexibility You can stop, restart, lower and raise payments whenever you like, as often as you like. Money is locked away You can be comfortable with the knowledge that the child won t be able to withdraw from the Junior ISA until they turn 18. Potential for growth Stocks & Shares Junior ISAs are linked to stock market performance, so investing in their funds could potentially provide a better return than cash savings over the long term if the market performs well. As with any investment, the value of your money can go down as well as up and the child could get back less than you have paid in. Scottish Friendly 2013

10 Things to remember 10 It s their money Remember, any funds invested will go straight to the child, and will only be made available to them on their 18th birthday. Scottish Friendly 2013

11 Summary 11 JUNIOR ISAS IN A NUTSHELL Junior ISA stands for Junior Individual Savings Account There are two kinds of Junior ISA - Cash and Stocks & Shares A Cash Junior ISA is like a regular savings account A Stocks & Shares Junior ISA invests your money in the stock market For a Stocks & Shares Junior ISA, the value of your investments can fall as well as rise and the child could get back less than you have paid in Any interest or earnings made within either Junior ISA is tax-free Tax treatment depends on individual circumstances and tax law may change in the future For the Stocks & Shares Junior ISA, tax-free means the fund the plan invests in grows free of income and capital gains tax (other than tax on dividends from UK shares) You can invest up to 3,720 in a Stocks & Shares Junior ISA in the current tax year, less any amounts subscribed to a cash Junior ISA* You can invest up to 3,720 in an Cash Junior ISA in the current tax year, less any amounts subscribed to a Stocks & Shares Junior ISA* You can switch your child s Cash Junior ISA to another Cash Junior ISA or Investment Junior ISA An Investment Stocks & Shares Junior ISA can only be switched to another Stocks & Shares Investment Junior ISA * Maxiumum Junior ISA allowance for 2013/14. Allowance rises every year in line with inflation. Scottish Friendly 2013

12 Summary 12 JUNIOR ISAS IN A NUTSHELL Your child can have only one Cash Junior ISA and one Stocks & Shares Junior ISA You cannot take out another Stocks & Shares Junior ISA with another manager once you have set one up and would have to transfer your Junior ISA balance to the other ISA manager should you wish to do so Your child cannot touch the money until they are 18 You cannot touch any money in your child s Junior ISA Once set up, anyone can contribute to your child s Junior ISA as long as the JISA remains within the annual limit Junior ISAs should be considered as long-term investments Scottish Friendly 2013

13 Summary 13 No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting Advisers may charge for providing such advice and should confirm any cost beforehand. Stock market investments can go down as well as up and you could get back less than you have paid in. Want to know more? Thanks for reading. We hope you ve found this guide helpful. If you d like to know more about Junior ISAs or have a question, you can find out more on our website /children/junior-isa Scottish Friendly Asset Managers Ltd. Scottish Friendly House 16 Blythswood Square Glasgow, G2 4HJ Authorised and regulated by the Financial Conduct Authority. Member of IMA. Scottish Friendly 2013